Jack of All Trades? Product Diversification in Nonfinancial Firms

The announcement of Citicorp's merger with Travelers Insurance, and much of the accompanying commentary by banking observers and consultants, included many references to cross-marketing opportunities, one-stop shopping, and other potential scope economies—the gains from having a single firm provide different goods or services. Some skeptics have noted that these scope economies, which seem so plausible, have been difficult to exploit profitably. The diversification strategies of financial firms from Sears to American Express have been notable more for unfulfilled expectations than for high profits. While financial firms keep searching for the secret formula to make profits out of providing multiple financial services under one roof, non-financial firms seem headed in the opposite direction. For well over a decade, CEOs in the non-financial sector have increasingly shunned terms such as synergies; currently, their man-tras are corporate focus and a renewed emphasis on core businesses and core competencies. For the last few years, economists have been working to document, understand, and evaluate both mar